Now bank defenders will say that post the crisis, all the banks have much bigger liquidity buffers, usually now measured in months, not weeks. True, but consider: how long was Lehman on the ropes? It was months. When Bear went under, everyone knew Lehman was next on the list, since it was a bigger version of the same bank. Lehman failed almost exactly six months after Bear. It hung in the breeze because no one knew what to do with them. Don’t underestimate how long BofA could twist in the wind if management doesn’t succeed in restoring investor confidence. Second, WaMu was much more heavily deposit funded than BofA, and it suffered a bank run. Don’t think large banks are necessarily immune to runs.
Amusingly, BofA took issue with my post yesterday, but they didn’t contact me. Instead, they hectored Henry Blodget. Rather weird and frankly a bit cowardly, since Charlie Gaparino was quite able to find and yell at me on the phone within a couple of hours of my saying bad stuff about his positive coverage of Lehman in 2008.
Now the most interesting part is not what they disagreed with, but what they tacitly admitted to. I wasn’t doing a valuation, merely pointing out some items on their balance sheet that investors might question. One was second liens, which I suggested might need to be written down by $48 billion or so. Not a peep on that one. Nor did they push back on saying some, perhaps a lot of their $78 billion of goodwill might have air in it (that might be less sensitive, in their opinion, since they have taken to focusing on tangible common equity, which is also what US regulators have taken to emphasizing. But historically, investors care about book equity too, after all, when someone pays a merger premium, investors like to think they got value for money).